Real Estate and Mortgage Tips for Tax Season

 
      It’s that time of the year again, time to gather the paperwork and crunch the numbers because  beginning this month, it’s tax season. Although most people have a professional prepare their taxes, having a general knowledge of the tax code will help you make better decisions that will reduce your tax liability in the year to come. Keep in mind that deductions reduce the amount of income that you are taxed on, while credits are subtracted from the amount of tax that you owe and are therefore more valuable. Remember, you should always seek the advice of a knowledgeable tax professional to confirm you are able to use any advice you read about here.
 
     The most well known deductions homeowners can take every year are the mortgage interest deduction, the mortgage insurance deduction, and the property tax deduction. To take advantage of the mortgage interest deduction, you must itemize your deductions and your mortgage balance must be less than $1 million for married couples or $500,000 for singles. This deduction can be taken on both a primary residence and a second home, although only one second home at a time can utilize the deduction. If you have a home equity line of credit or other “cash-out” mortgage loan, you may deduct interest paid on this mortgage only if the balance is $100,000 or less for married couples or $50,000 or less for singles. At the end of the year, your mortgage servicer should send you a 1098 form, which shows exactly how must interest you paid during the year to make deductions easy.
 
     If you put less than 20% down when you purchased your home, you probably make a monthly payment for mortgage insurance, which is also tax deductible. Check the monthly escrow deposit on your mortgage statement to see if you pay this premium. Finally, property taxes are deductible as well. If you’re like most homeowners, you probably have an escrow account that pays this automatically, so make sure to remember to find your receipt. You can search for the receipt on the Greenville County Website under Real Property Services, or the Spartanburg County Website under Assessor Tax Records.
 
     The mortgage interest deduction has recently come under fire as lawmakers re-examine the tax code. Although there has been debate over its elimination, many experts remain doubtful that the deduction would be taken away because of its long history in the tax code and the potential damage it could bring to the still fragile housing market.
 
     If you purchased your home in the past year, you probably also paid expenses at closing that can be deducted. Any points paid at closing, also called the loan origination fee, mortgage broker's fee, loan discount, or discount point, must be expressed as a percentage of the loan amount to be deductible. Under normal circumstances, you may deduct the full amount paid in points in the year that you closed. In some cases, such as if your mortgage was for a second home, you may only deduct the amount of points paid as an equal amount over the term of the loan. For example, if you paid $1,000 in points on a 30 year loan, you would divide the $1,000 by 30 years, and only deduct $33.33 per year. If you sell your home or refinance before the end of the 30 years, you may deduct the remainder. If you refinanced your home in the past year, you may only deduct the amount of points paid as an equal amount over the term of the loan, as in the example above, you cannot deduct the full amount in the year you closed.
 
       Owning your home reduces your total tax liability even if you own your home outright. And if you purchased or refinanced a home to take advantage of today’s low interest rates, you can save even more by deducting part of your closing costs. If you did not refinance your home in the past year to current rates, you should look at estimates to see if refinancing would make sense. I can provide a free consultation and mortgage review to see if we can save you money each and every month. You won’t have to pay anything out of pocket to refinance, and you might be able to refinance without an appraisal. See our rates below, and contact me for an estimate.



 
Adam Groblewski
Mortgage Consultant



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Further Tax Information:
Mortgage Tax Deductions from the IRS
 
Related Articles:
Should I Refinance?
Purchasing your First Home

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